Measuring the degree of government intervention on intergenerational family transfers (IFT)

1. Measuring the degree of government intervention on intergenerational family transfers (IFT) using NTA estimates Concepció Patxot Elisenda Renteria Miguel Sánchez Romero Guadalupe Souto

2. A proposal to the Incentives Working Group (IWG) 1. Integrated results for GA and NTA for Spain: some implications for the sustainability of welfare state (paper finished for Spain) 2. Measuring the degree of government intervention on intergenerational family transfers (IFT) using NTA estimates (paper almost finished for Spain) 3. A proposal of a comparative paper on indicators Concepció Patxot Elisenda Renteria Miguel Sánchez Romero Guadalupe Souto

3. General motivación • Ageing threats the sustainability of one of the Welfare State –one of greatest social achievements of the past century. • Effects of population ageing on the economy • L scarce • K relatively abundat Effects depend on: • Preferences on savings: retirement/bequest/precaution motive + intergenerational transfers • Other endogenous variables: Even fertility! • Effects on budget depend on: • Increase in demographic dependency and… • Increase in ratio benefit receivers/tax payers (wage us the tax base, so…) • NTA/GA allows to obtain some helpful indicators (Stiglitz commission) • What happens to the rest of age reallocations?! It matters for intra/intergenerational redistribution and there is no an integrated theoretical model accounting for all the transfers. • We can measure the degree of intervention to both sides ¿ ↑ k=K/L? ¿ ↑ w ↓ r

4. Measuring the degree of government intervention on intergenerational family transfers (IFT) using NTA estimates • Why is ageing a problem for the welfare state?:.. Besides the traditional constraints on public policy • Tax schedules that are as neutral as possible • A new difficulty emerges: most of the social programs (pensions, health care, education, etc.) • Entail not only intra but intergenerational redistribution • It implies intertemporal movement of public funds, usually financed – either explicitly or implicitly – on a pay-as-you-go basis (PAYG). • Most outstanding example: Pension system (explicit PAYG), but also health, etc. • The “transition problem”: The initial gift must be born by the current active who should raise a new fund so they bear 2 burdens (a third one: child rearing!!!) • A deeper question: Why should de government interfere in the forward or backward intergenerational transfers (from parents to their offspring or vice versa).

6. Motivation • A deeper question: Why should de government interfere in the forward or backward intergenerational transfers (from parents to their offspring or vice versa). • A too complex issue to model, but we can do something using NTA estimates: • Measure the degree of intervention in both sides (paper for Spain) • Comparative analysis (general paper) • Measure the first and second demographic dividend (Mason & Lee 2006) • A more transparent way of measuring the room left for the second DD: A sinthetic indicator (general paper)

7. Measuring the degree of government intervention on IFT “Modified” Lee Arrows LCD from 41,31 73,65 13,14 122.85% 140.20% 11,48 74,99 TGfrom 41,74 156.33% 78.31% TF from 43.43 62.33 14,29 19.78% 101.33% TF from 74.94 29.10%

8. Measuring the degree of government intervention on IFT: “Modified” Lee Arrows Source: Ferrer and Patxot (2007)

9. (Back to the effects on budget) The Spaish demography

10. NTA and GA an integrated view Standard NTA: Baseyear Cross Section Economic Variables Fist DD Backard looking GA: forward looking Sustainability of TG Demographic Variables: Population (P) Baseyear, t GA newborn GA Future Time

11. GA/NTA indicators • Tipical GA sustainability indicator • PV future net deficits/PV future GDP • = “Intertemporal” Debt/ “Intertemporal” GDP • Evolution of Budget balance/GDP • NTA indicators: Base year and changing population • “Economic” Support Ratio (ESR) • L/C (weighted by NTA profiles) • Another option: LCD/LCS = Aggregate - LCD/aggregate + LCD (LCS) • Evolution of financing sources of LCD • Sustainability Indicators (more GA) ABR/Yl needed an interesting “Residual” • Issues • 3-4 “economic sustainability” indicators • (NTA) TG is “zero” in a closed economy , but still: its evolution is interesting • General equilibrium AND wealth account missing

12. Figure 6 Evolution of the share of TG, TF and ABR in LCD (1908-2150)

13. Figure 7 Evolution of economic sustainability indicators for Spain (1908-2150)

14. Figure 8 Evolution of the ABR aggregates (1908-2150)

15. Discussion A comprative paper exploring the romm left for the second demographic dividend • Sustainability ABR/Yl • Balance: “Modified” Lee Arrows • Explicit funding and implicit or pre “funding” : (More modified rows) Where about in the demographic transition? • Best/worst moment?

16. Thankyou

18. Spain 1. Introduction 2. Theoretical framework/motivation/// An incursion to/a selective turn across the // Some hints on the//Lit on IIT (an incursion....) 2 BIS. GA and NTA Methodology AND ITS REALTION TO GA: Similarities and disparities. 4. Results • 4.1. Basic NTA results for Spain in 2000 • 4.2. Measuring the government intervention on IFT • 4.2.1. Balance indicators using NTA profiles • 4.2.2. Balance indicators in the GA tradition • Singles versus households NTA 5. Concluding remarks (to be written)

19. Comparative 1. Introduction 2. Theoretical framework/motivation/// An incursion to/a selective turn across the // Some hints on the//Lit on IIT (an incursion....) Tabla... 2 BIS. GA and NTA Methodology AND ITS REALTION TO GA: Similarities and disparities. 4. Results • 4.1. Basic NTA results for Spain in 2000 • 4.2. Measuring the government intervention on IFT • 4.2.1. Balance indicators using NTA profiles • 4.2.2. Balance indicators in the GA tradition • Singles versus households NTA 5. Concluding remarks (to be written)